SALMAN HAMID, J. - This suit has been preferred by the plaintiff under Section 9 of the Financial Institutions (Recovery of Finances) Ordinance, 2001 (2001 Ordinance) for recovery of Rs.
850,461,420.73 with cost of funds and for sale of hypothecated assets and mortgaged property against the defendant. The plaintiff has claimed that various financial facilities were availed of by the defendant from the plaintiff which financial facilities the defendant has failed to repay.
According to the plaintiff the defendant in lieu of financial facilities in the first instance created charges vide two Letters of Hypothecated dated 27th June, 2002 and 15th March, 2005, whereby movable assets, stocks, book debts, raw material, receivables etc. Had been hypothecated and Charge in respect thereof was duly recorded. This charge in the first instance was upto Rs.
200,000,000/- which was subsequently. Enhanced to Rs. 252,000,000/- in June, 2008.
2. The Facility Advice Letter dated 28.02.2007 was brought on record to show that in terms thereof the plaintiff and defendant entered into Running Finance Facility Agreement on mark-up basis of the instant where-under the> plaintiff agreed to provide Running Finance Facility to the defendant of Rs. 200,000,000/-. At the time of the above Running Finance Facility, the plaintiff also granted to the defendant a Letter of Credit Facility upto the limit of Rs. 500.0. 000/- whereby various letters of credit were issued by the plaintiff in favour of the defendant. At the time of issuance of such letters of credit, it was agreed between the. Plaintiff and defendant that all the LCs issued by the plaintiff would be retired through defendant's own resources. The defendant failed to retire such LCs from their own resources. Thus the plaintiff was forced to make payments there under, with the result that Forced Finance Past Due Acceptance was created (FFPDA). Such FFPDA having been created on account of defendant's defaults, it was requested by the defendant that further Finance Facility of Rs. 361,000,000/- be created. As a result Term Finance Facility of Rs. 361.0. 000/- was extended in terms of Letter dated 28th June, 2008, whereby it was agreed by the defendant that mark-up amount of Rs. 29,954,221.40 (Past Bills) which were incurred in FFPDA will be treated separately and would not become part of the Term Finance Facility and that the Past Bills had to be adjusted prior to the grant of the Term Finance Facility. Agreement for Financing on mark-up basis for Rs.
361,000,000/- was thus entered into. Past Bills before the disbursement of Term Finance Facility was not paid off by the defendant. The amounts not coming forward, in the first instance, the plaintiff sent legal notice but to no avail and thereafter the present suit was filed.
3. In the plaint the amounts those were due and payable by the plaintiff were described as follows:- FINANCIAL FACILITIES AMOUNT (PAK RS.)
Total principal availed RF Facility 200,000,000/- Past Bills Nil TF Facility 361,000,000/- Principal amount repaid RF Facility 12,982,664.25/- Past Bills Nil TF Facility Nil Principal Outstanding RF Facility 187,017,335.75/- Past Bills Nil TF Facility Nil Total Outstanding Principal 548,017,335.75/- Mark-Up payable RF Facility 140,151,854.03/- Past Bill 23,954,221.40/- TF Facility 99,518,996.42/- Mark-Up repaid RF Facility 81,366,466.03/- Past Bill 21,078,864.87/- TF Facility Nil Mark-up outstanding RF Facility 58,785,388.00/- Past Bill 2,875,356.53/- TF Facility 99,518,996.42/- Total Outstanding Mark-Up 161,179,740/- Other applicable charges RF Facility 49,160,544,75/- Past Bills Nil TF Facility 92,103,799.28/- Total other Applicable Charges141,264,344.03/- Total Outstanding Facilities Amount850,461,420.73/-
4. After service, leave to defend application was filed by the defendant, a perusal whereof would show that availing of Running Finance Facility upto Rs. 200,000,000/- was not disputed nor execution of various documents by defendant in respect thereof was denied. However, it was mentioned that the Finance Facility that was extended in the year 2007 was nothing but renewal of Running Finance Facility, previously granted and that the defendant never agreed and/or requested for creation of FFPDA and that the mark-up of Rs. 23,954,221/- as claimed by the plaintiff was nothing but smoke screen to capitalize mark-up. It was further stated that payment totalling Rs. 71,982,913/- if accounted for towards payments of principal amount, which according to defendant had been wrongly adjusted by the plaintiff towards mark-up and that if the sum of Rs.
385,346,930/- is also adjusted, it would come on record that the defendant has over paid Rs.
59,720,956/-.
5. However, amount of Rs. 325,625,974/- which was stated to be outstanding against Term Finance Facility was not disputed but it was mentioned that this amount be adjusted against over payment of Rs. 385,346,930/- in the 'Running Finance Facility. To support that the plaintiff's claim is nothing but towards recovery of mark-up upon mark-up and capitalization and that there was no fresh agreement of finance and the agreements which are available on record are nothing but rescheduling and roll over of principal amount and mark-up and that plaintiff's suit is not maintainable for recovery of outstanding amount as claimed by it, argument was therefore raised that case for leave has been made out. To support such contention the case of Azmat Wali v.
Hassan Al-Adawai and two others (1983 CLC. 546) and the case of Fine Textile Mills Ltd. Karachi v.
Haji Umer (PLD 1963 SC 163) and Habib Bank v. Qayoom Spinning Ltd. (2001 M LD 1351) were relied upon to contend that mark-up cannot be capitalized as principal and roll over facility as this amounts to compounding mark-up upon markup and that if the defendant has been able to make out a plausible defence it is entitled to unconditional leave and that by virtue of Article 10-A of the Constitution where substantial questions of law and fact has been raised, it be deemed to contain in it a plausible defence.
6. In rebuttal it was stated by the plaintiff that no substantial question of law or fact having been raised by the defendant and it also having admitted availing of Financial Facility and execution of document in respect thereof, the defendant is not entitled to leave. It was further explained by way of rebuttal that unlike Term Finance Loan Facility, Running Finance Facility, does not have fixed payment schedule and the payment against Running Finance Facility are made during the period of said Facility i.e. Date of singing of Running Finance Facility till next eleven months. It was further urged that Running Finance Facility is a roll over Facility where the borrower is allowed a certain limit and such borrower is allowed to withdraw the amount and deposit funds staying within such limit. It was therefore, argued that mark-up is always accrued on daily basis and falls due every quarter. It was reiterated that the amount of mark-up shown against such Facility are exactly amounts of mark-up which are actually due and payable by the defendant to the plaintiff.
7. I have heard arguments of the learned counsel have gone through the record in detail and have also examined the precedent cited by the learned counsel for the defendant and the case-law on the subject.
8. It would be noteworthy to observe that the execution of various Agreements and availing Finances thereunder has not been disputed or denied by the defendant. The only thing by way of defence that was brought forward was that the plaintiff is not entitled to capitalize on mark-up and that the plaintiff has raised nothing but amounts towards mark-up upon mark-up; and that the principal amount had been paid off and that it is the plaintiff who owe to the defendant and not otherwise.
9. There is a Letter dated 15th December, 2008 available on record (Annexure 'A1 to the replication), the title whereof says, "financial restructuring", In this Letter the defendant itself has traced history of finances availed of by it from various financial institutions, including the plaintiff. It was mentioned in such Letter that the defendant was desirous of, "restructuring of various liabilities". At page 2 of the Letter the defendant had stated as under:--- "In view of the above, we are proposing that existing debt availed to be restructured in the following manner:- Interest Bearing Long Terms Debt Rs. 281 million Additonal Non-Interest Bearing Long Term Debt.Rs. 127 million Short Term Debt Rs. 152 million Repayment of Frozen Mark-up Rs. 26 million We are enclosing herewith the Detailed Restructuring Proposal and Projected Financial statements, which have been approved by the four large banks, which may kindly be approved at the earliest, as we will be calling a joint meeting of all the banks on December 22, 2008 to formalize the same.
Since considerable stakes are involved and the time is of much essence, we shall appreciate your early response in this matter.
Thanking you in anticipation".
10. Along with this Letter, the defendant .Had enclosed a document, caption whereof read, "Dewan Textile Mills Ltd. Debt re-profiling and Additional Financing". Under the head of facility/transaction, it was mentioned that, "restructuring of existing bank borrowing (funded and unfunded) debt of the company in two syndicate Term Finance Facility was proposed. The purpose of which as would be evident from the document itself was to, "restructure" borrowing obligation of the defendant .And provide additional working finance, allowing it (defendant) to reduce financial charges and increase cash flow generation through higher operation. This document would show that the defendant was to, "restructure" its liabilities and for such purpose eventually the defendant entered into Agreement for Financing on mark-up basis dated 20th June, 2008 which was in continuation to the Letter No. RCAD/CBG-08/191 of the instant. This Letter and the Agreement for Financing on mark-up basis would highlight that the defendant was desirous of availing Term Finance Facility to the extent of Rs. 361,000,000/- for the purposes of restructuring the payment of its short term borrowing and was also to liquidate liability of FFPDA (independently).
11. It would be evident that the defendant had accepted that term Finance Facility liability of Rs.
361,0, 000/- was due and payable; but stated that it was subject to adjustment of over payment of Running Finance Account. It was further stated that the defendant disputes payment of Rs.
35,374,026/-, as excess letters of credit charges had been wrongly capitalized. The liability of FFPDA was nowhere disputed. Simple denial of payment would not, by itself raise a substantial question of law or fact a mandate of Section 10 of Ordinance 2001, or even a plausible case.
12. The three precedents relied upon by the learned counsel for the defendant would show that in the, case of Azmat Wali it was observed, "if no defence is spelt out, on facts or in law, in the application for leave to defend or documents filed by the defendant, leave is to be refused". Only after observing as much it was mentioned that, "result will be that the suit shall be decreed".
Therefore it was held in the cited case that, "if any kind of defence is made out, be it plausible or even illusory the defendant' is to be granted leave of the suit". It is thus clear from the citation, relied upon by the learned counsel for the defendant that the condition precedent is that a defence has to be spelt out in fact or law in the application for leave to defend or the documents filed by the defendant. If such hurdle is not overcome, then as per the citation under point leave is to be refused with the result that the suit shall be decreed. Similarly, in the case of Fine Textile Mills Ltd.
Leave was granted when it came on record that plausible defence was shown and that there was substantial question of fact or law which needs to be tried or investigated into, only then the defendant was found entitled to leave to defend. The defendant in the application for leave to defend has not disputed availing of Financial Facility of Rs. 200,000,000/- or execution of documents in respect thereof. Only it was mentioned that it was roll-over and/or rescheduling and that mark-up on mark-up cannot be capitalized. This is my estimation and keeping in view that the liability of the defendant was restructured on their own request and that FFPDA was also created after default, even plausible defence was not raised. It may also be noted that in the cited cases provisions of Order XXXVII, CPC were under discussion, which are somewhat different and distinct from the provisions of Section 10 of Ordinance 2001 inasmuch as Rule 2 of Order XXXVII, CPC says that the defendant shall not appear or defend the suit unless he obtains leave from a Judge whereas under provision of Section 10 of Ordinance 2001, it is mandated that substantial questions of law and facts must be alive, which would constitute, "substantial questions of law and fact" and that the defendant having overcome such a hurdle, becomes entitled to leave. Leave as a matter of right cannot be claimed. If the above two citations are gauged on the yardstick of Section 10 of Ordinance 2001, it would be evidently clear that there has to be substantial questions of law and fact whereas Order XXXVII, Rule 2, CPC only leave has to be obtained without being qualified to raise substantial question of law and fact and only triable issue would suffice. The two citations relied upon by the learned counsel for the defendant are clearly distinguishable and does not help him in any manner. As to the case of HBL v. Qayoom Spinning Ltd., it may be mentioned that in paragraph 69 thereof it is stated that, "However, if the bank is able to establish the fact that the amount has been actually disbursed under the subsequent agreement and it is not for the purpose of adjustment of previous debts and that there has been a de-facto sale and purchase in commodity in that situation or agreement that may have been entered into for such purposes and independent of the previous agreements can be looked into and any money shall be recoverable there against.
13. It has come on record that the plaintiff having defaulted in making payments of the letters of credit FFPDA was created and that payment thereof was agreed by the defendant as evident from Agreement dated 28th July, 2008 and that such Agreement altogether envisaged fresh disbursement of amount and secondly it was also towards restructuring of the liability of the defendant. At this point it would be advantageous to note that in the case of Muhammad Arshad and another v. Citibank NA (2006 CLD 1011) the Hon'ble Supreme Court of Pakistan held that the main object to get the renewed agreement was restructuring of finance facility and not liquidation of the liability and that therefore the rescheduling agreement was authentic, genuine and executed between the parties and acted upon. Here the case of the plaintiff is even on a better footings inasmuch as that the defendant's liability was restructured on their own request (evident from record) and Agreement in such regard was also executed for payments thereunder.
14. It is well-settled by now, that in the cases pertaining to restructuring, the amount is not disbursed rather it is brought forward, envisaging as liability of the customer and therefore, customer contending that since actual disbursement was not made and therefore, the financial institutions cannot raise claim as there was no such disbursement is of no substance inasmuch as that while restructuring, a financial institution is not obliged to bring forth accounts prior to the agreement whereupon the restructuring had been made. The restructured amount is always an admitted and acknowledged amount by the borrower and no disbursement is involved in such restructuring which is distinct and different from fresh finance where disbursement is pivotal. It would be noteworthy to mention that restructuring of borrower's liability is an accommodation and latitude extended by the financial institution.
15. For what has been discussed hereinabove, no case for leave has been made out. Therefore this CMA is dismissed. As a result suit of the plaintiff is decreed for the amount claimed in the title of the plaint. The plaintiff shall also be entitled to cost of funds in terms of Section 3 of Ordinance 2001 for the satisfaction of above outstanding, Prayers (i), (ii) and (iii) are allowed.